The Crash of the International Dollar Market?

The background to understanding what may be imminent is the recycling of the Petro-dollar:

Especially during the years 1974–1981 and 2005–2014, oil exporters amassed large surpluses of "petrodollars" from the sale of oil at historically high prices.[1][2][8] (The word has been credited alternately to Egyptian-American economist Ibrahim Oweiss and to former U.S. Secretary of Commerce Peter G. Peterson, both in 1973.)[9][10][11] These petrodollar surpluses could be described as net U.S. dollar-equivalents earned from the export of petroleum, in excess of the internal development needs of the exporting countries.[12] The International Monetary Fund argues that these surpluses could not be efficiently invested in their own economies, due to small populations or being at early stages of industrialization. Instead, the IMF advocated for the surpluses to be invested in other locations, most notably the United States, or spent on imports such as consumer products, construction supplies, and military equipment. Additionally, the IMF also argues that global economic growth would have suffered if money was withdrawn from the world economy and stored in the reserves of developing nations, while the oil-exporting states needed to be able to invest profitably to raise their long-term standards of living.[13] Alternatively, critics argue that the international monetary system, reliant on petrodollar recycling, exploits developing nations while advancing American imperialism.[14]

Economist Michael Hudson is more blunt:

Under the rules of (the 7th US national security advisor and 56th US secretary of state, serving under presidents Richard Nixon and Gerald Ford) (Henry) Kissinger — and all this was explained to me by the Treasury and the State Department, in 1974 and 1975 — the US military told Saudi Arabia and other OPEC countries, “You can charge whatever you want for oil, but you have to use the surplus have to invest in the United States. We’re not going to let you buy control of any major American firms. You can’t buy American companies; only we can buy control of foreign economies. You’ll buy bonds. You can finance American industry and American companies. You can buy stocks in the companies. You can make money by just depositing your money in banks”. These were the petrodollars. The petrodollars were the savings of OPEC countries invested in banks.

Enter the War against Iran, resulting in extensive damage to oil facilities and US military bases in the Middle East, not to mention the ongoing blockade of the Strait of Hormuz. Michael Hudson adds:

Now that the OPEC countries are blocked from having export earnings, they’ve announced, “Well, we’ve actually debt-leveraged our own economy. Rich as we are, our real estate projects and our investments are financed by debt, and we have to begin selling off our holdings of US securities, and gold, in order to keep our domestic budgets and the balance of payments in balance”. So all of this now is leading to a sell-off of dollars. And this has reversed what was the whole petrodollar, the whole inflow of OPEC money, into the currency, of oil into dollars. Now, this is becoming a drain on dollars.

Analyst Alexaner Mercouris sounds the alarm in the case of the United Arab Emirates' petition for US dollar swaps in this podcast (from 1:30 to 14:30), but the key discussion is undertaken by Yanis Varoufakis and Wolfgang Munchau in the following video:

More on the "Transition" to a New World Order

This is a further follow-up to my previous two posts, The US Dollar as Global Reserve Currency and its implications for the United States TODAY! and More on the Trump Tariff Wars. This post is perhaps best described as a distillation or summary of what I posted earlier, thus if you would like more detail, please refer to my previous posts.

As you will immediately note, this isn't a post of mine as much as it is a plug for an article entitled 'Transition' to a New World Order Is Beyond Most in the West, by the renown geopolitical analyst Alastair Crooke. I do this because social media tends to censor The Unz Review, the alternative media where Mr. Crooke's articles are often published. Although Crooke headlines his article with the phrase The new era marks the end to ‘old politics’, it is changes to the world economic order which I am more interested in. (Since Crooke makes reference to the "financialisation" of the economy over the years, an excellent background reference to that can be obtained via economist Michael Hudson).

I first would draw attention to the excellent quote by the the 12th chairman of the Federal Reserve Paul Volcker Jr., which Alastair Crooke inserts near the beginning of his article (Please go to the link and read it for yourself). Further on, Crooke writes:

The dollar-led globalist system worked well initially – at least from the U.S. perspective. The U.S. exported its post-WW2 manufacturing over-capacity to a newly dollarized Europe, who consumed the surplus. And Europe too, enjoyed the benefit of having its macroeconomic environment (export-led models, guaranteed by the U.S. market). The present crisis began however, when the paradigm inverted – when the U.S. entered on its era of unsustainable structural budget deficits, and when financialisation led Wall Street to build its inverted pyramid of derivative ‘assets’, resting upon a tiny pivot of real assets.

Perhaps the last quote I will extract from Mr. Crooke's article is the following:

It is because of this western deep devotion to ideology (as well as to the Volker ‘comfort’ provided by the system) that has triggered such a torrent of anger and outright derision towards Trump’s ‘rebalancing’ plans. Barely a western economist has a good word to say – and yet no plausible alternative framework is offered. Their passion directed at Trump simply underlines that western economic theory is bankrupt, too.

Go and read the entire article. The message I would like to transmit out of this is that it is pure fantasy to think that the removal of US president Donald Trump will somehow permit the restoration of the US economy to its prior state, something like the restoration of the original operating system of your PC once it has been hopelessly corrupted. We are in a new world, ladies and gentlemen, and the sooner we realize it the better.

More on the Trump Tariff Wars

This post is meant as a follow-up to my previous one titled The US Dollar as Global Reserve Currency and its implications for the United States TODAY! (Note: if you aren't an economist, you might want to go there first and view the short introductory video titled "Why Is the U.S. Dollar So Popular Around the World?").

This document was written by Stephen Miran, the economist behind Trump's tariff policies. I'm still in the process of reading it since it is an obligatory assignment for any academic economist that is teaching these days. Granted, it is a bit wonkish for the layman, but I'll just draw your attention to a few statements in the introduction to the first chapter. Like most other significant economic policy changes (and this is one of the most significant so far this century), its effectiveness inevitably requires the implementation of a series of ancillary or "supporting" measures. This is where it gets a bit dicey.

For example, Miran states (emphasis in caps is mine):

President Trump has also discussed adopting SUBSTANTIAL CHANGES TO DOLLAR POLICY. Sweeping tariffs and a shift away from strong dollar policy can have some of the broadest ramifications of any policies in decades, fundamentally reshaping the global trade and financial systems. There is A PATH BY WHICH THESE POLICIES CAN BE IMPLEMENTED WITHOUT MATERIAL ADVERSE CONSEQUENCES, BUT IT IS NARROW, and will require currency offset for tariffs and either gradualism or coordination with allies or the Federal Reserve on the dollar. POTENTIAL FOR UNWELCOME ECONOMIC AND MARKET VOLATILITY IS SUBSTANTIAL, BUT THERE ARE STEPS THE ADMINISTRATION CAN TAKE TO MINIMIZE IT.

Hmmmmm, what are these measures, I wonder?🤔 As I alluded to in my previous post, the US needs to end the use of the dollar as the global reserve currency (to me as an economist, it seems as the only plausible alternative but it would mean that the USA wouldn't be able to have access to cheap money to finance its wars, ... err, I mean its "expenditures"🙄). Since I am profoundly anti-war, I would like nothing less than for the USA to be unable to finance its overseas imperialist wars, so I would favor ending dollar supremacy, hands down. However, does Trump want to do that? Of course not! He wants to have his cake and eat it too:

Trump has praised the reserve status of the dollar and threatened to punish countries that stop using the dollar for reserve purposes.

OK, so what are you going to do, Mr. Trump, in order to ensure the continued supremacy of the US dollar?🧐 The document continues:

I expect these tensions will be resolved by a suite of policies designed to increase burden sharing among trading and security partners: rather than attempting to end the use of the dollar as the global reserve currency.

What exactly does Miran mean (or might Trump mean) by those seemingly anodyne words? They mean Trump is going to force countries to PAY the US tribute to maintain its global financial and military empire! So, let me get this straight. The USA is going to ask a country like, say, China, to pay it funds so it can wage war against China? Good luck with that.

Regarding China in particular, there are good reasons to believe it is in a much better position to weather Trump's tariff wars. Better than even the United States! To this effect, I would highly recommend the worthwhile round-up by the very competent journalist Helena Cobban, titled China displays its chops in tech, mil-tech, manufacturing– and even political philosophy…. You might also want to check out an earlier interview with Columbia U. economist Jeffrey Sachs.

Building the New World Order

Much to the chagrin of the western establishment, the way of the future is being articulated by this man:

"We have consistently underscored the diversity of the world as a prerequisite for its sustainability. It may appear paradoxical, as greater diversity complicates the construction of a unified narrative. Naturally, universal norms are presumed to aid in this regard. Can they fulfill this role? It stands to reason that this is a formidable and complicated task. Firstly, we must avoid a scenario where the model of one country or a relatively minute segment of humanity is presumed universal and imposed upon others. Secondly, it is untenable to adopt any conventional, albeit democratically developed code, and dictate it as an infallible truth to others in perpetuity. The international community is a living entity, with its civilisational diversity making it unique and presenting an inherent value. International law is a product of agreements not even between countries, but between nations, because legal consciousness is an integral part of every unique culture and every civilisation. The crisis of international law, which is the subject of broad public discussion today, is, in a sense, a crisis of growth. The rise of nations and cultures that have previously remained on the periphery of global politics for one reason or another means that their own distinct ideas of law and justice are playing an increasingly important role. They are diverse. This may give the impression of discord and perhaps cacophony, but this is only the initial phase. It is my deep conviction that the only new international system possible is one embracing polyphony, where many tones and many musical themes are sounded together to form harmony. If you like, we are moving towards a world system that is going to be polyphonic rather than polycentric, one in which all voices are heard and, most importantly, absolutely must be heard. Those who are used to soloing and want to keep it that way will have to get used to the new 'scores' now. Have I mentioned post-WWII international law? This international law is based on the UN Charter, which was written by the victorious countries. But the world is changing – with new centres of power emerging, and powerful economies growing and coming to the forefront. That predictably calls for a change in the legal regulation as well. Of course, this must be done carefully, but it is inevitable. Law reflects life, not vice versa."

Enter the BRICS+. The recent Kazan Summit is indeed a watershed, but there is disagreement over what was intended and what was achieved. The following video will go a long way toward clarifying these issues. In it, political economist Radhika Desai is joined by Ben Norton and former central banker Kathleen Tyson, author of the book "Multicurrency Mercantilism" to explain BRICS's plans to transform the international monetary and financial system, and to discuss policies at the 2024 summit in Kazan, Russia.:



By the way, Youtube has the bad habit of censoring taking down inconvenient videos. If that happens in this case, the audio of said video can easily be accessed here.

Succinct, and to the Point!

With perhaps the exception of his endorsement of Robert Kennedy Jr., I agree with much of this:



It's stubbornness, however, will get the best of the United States. The perfect example is its attempt to pull a "Tonya Harding" on the Chinese:

BRICS+ Onward Ever, Backward NEVER

I am glad to have lived long enough to witness this, even if it is in its early stages and the road ahead is long and treacherous. Here is a major marker to celebrate on that long road:


Find the above video HERE

The world has changed economically and geopolitically, and who better to provide the background than Pepe Escobar:



More on the BRICS Summit here:



...And here:



Key speeches at the BRICS Business Forum:



While undeniably positive overall, it is important to temper expectations:

To be clear, it’s a positive development that a broad range of countries will now participate in BRICS’ countless gatherings each year ahead of its annual summit, but the only thing that they all have in common is their interest in accelerating financial multipolarity processes via their national currencies. That’s not to downplay the importance of BRICS expanding in the way that was ultimately decided upon, but just to inform readers of its newfound limits in order to temper their expectations. At the same time, BRICS also has more opportunities than before in the sense that more countries can now participate in whatever alternative financial architecture their group unveils in the future such as an inclusive non-Western SWIFT-like payment system. These benefits balance out the obstacles and arguably make the latest move worthwhile in the long term, which is the period that they have in mind, not the short- or medium-terms per se.

May you live in interesting times. Yes indeed we are!

What Exactly is 'Openness'?

A friend of mine posted a riposte of Angela Merkel to Trump which went like this: “It is not isolation and the building of walls that make us successful, but open societies.” I think we need to step back for a minute and ask what exactly is this "openness"? Surely open-mindedness is something that is emulated in liberal societies and we all probably agree that to have an open mind is desirable. Close-minded individuals, on the other hand, are to be avoided along with the attribute. That said, I think something is hidden here. "Openness" is sometimes uttered by politicians in the same breath as "free trade" (open trade or globalization), but they aren't the same thing. If they were synonymous, why does free trade or "globalization" also produce losers? Open-mindedness seems to us unequivocally positive while globalization obviously isn't (or at least not under certain circumstances). Someone, as we say in Spanish, might be trying to sell us "gato por liebre". As economists, we teach the so-called "virtues" of free trade (globalization), but with a very important caveat that is so easily forgotten. In my graduate international economics class, I teach the virtues of free trade, quantifying out of a very simple model what are called the "gains to trade". The principle "virtue", I tell my students, is precisely the enlargement of the "economic pie" resulting from specialization according to the comparative advantage of nations. It all seems simple, logical and quite reasonable when I demonstrate the concept on the board with numbers. However, I am also obliged to explain the caveat, which is that *free trade* produces both losers and winners. So while on the one hand, the economic pie is made greater by free trade, the latter must be followed by a redistribution of the pie in order to compensate the losers for their dire predicament which resulted directly from te implementation of said *free trade*. This is then depicted as a "win-win" for everybody because people are thereby able to partake in said enlarged pie. All good and well, right? Well, it so happens that things sometimes don't seem to turn out that way in the real world. President Bill Clinton explained the virtues of this free-trade induced *pie enlargement* when he sold NAFTA to the US public. The problem was that the losers were never compensated or compensated inadequately! We know that the Republicans do not believe in re-distributive policies, and Democrats seem as of late to lean more and more toward Republican policies, so there doesn't seem to be much prospect for re-distribution among the main political choices in America. Hence the losers were left to fester. The garment workers whose jobs "departed" for Mexico and China were not only never compensated, but the much heralded "retraining" of laid off workers from such "sunset" industries to enable adaption and subsequent employment in the "sunrise" industries which were to replace them was inadequate. ...And the politicians of both parties went their merry ways and forgot all about the "losers". The latter, to make a long story short, became bitter and elected Trump! So my point with this little ditty is that Trump is as much the fault of Liberals as it is the fault of those "Tea Partiers" who Hillary so disparagingly called "deplorables". Food for thought which I am uniquely capable of providing instruction on since it is my profession. Further reading on the subject is provided in the following PDF.

Originally published at LinkedIn.

Of Silk Roads and the U.S.A.

Pepe Escobar has been reporting for some time now on developments in the Far East, among other places. Keeping tabs on Mr. Escobar is a good way to keep tabs on everything "China", including several promising Silk Road initiatives. His latest article for my favorite blogger gives the following enticing summary:

Thanks to a set of cross-pollinating political institutions, investment funds, development banks, financial systems, and infrastructure projects that, to date, remain largely under Washington’s radar, a free-trade Eurasian heartland is being born. It will someday link China and Russia to Europe, Southwest Asia, and even Africa. It promises to be an astounding development. Keep your eyes, if you can, on the accumulating facts on the ground, even if they are rarely covered in the American media. They represent the New Great -- emphasis on that word -- Game in Eurasia.

However I don't think these initiatives, as he asserts, lie largely under Washington’s radar. Washington is well aware of them and though it may currently not know if it should thwart or join them, I believe the latter choice will wisely prevail in the long run. To cite a recent Brookings paper:

Many major economies in Asia, such as Australia, Singapore, South Korea, and Vietnam want to be part of both Chinese initiatives (the AIIB and the “One Belt, One Road”) and the American-led effort to reduce trade barriers.
(...)
There is a risk that the competing initiatives of China and the United States will lead to regional blocs and a disintegration of trade, but it is more likely that Sino-American competition will lead to strengthened institutions and deeper integration throughout Asia-Pacific.

Read both articles in their entirety.